7 Strategies to Prosper Through the Market Recalibration in Commercial Real Estate
The economy and commercial real estate market are undergoing a significant recalibration as consumers and organizations adapt to shifting demand and supply fundamentals, capital market trends, and stakeholder expectations. CRE operators and investors must adapt and leverage innovative resources and strategies to maintain and grow their enterprise value and returns.
Let’s look at seven proven approaches to staying competitive and keeping revenue growing.
1. Build a value proposition around innovation
Our business and consumer culture today is tech-oriented. Whether evaluating a service provider or considering purchasing a product, you’ll likely favor solutions incorporating the most advanced tech.
Why? Because you know you’ll experience the greatest benefits, whether in productivity, cost-efficiency, safety, risk reduction, or future-proofing your operations.
You can put this idea to work by acting like a technology company, i.e., using the most innovative tech and methodologies available to provide top-of-line solutions/offerings to your stakeholders.
In doing so, you can identify opportunities, differentiate your firm, and generate the most enterprise value. Emphasizing innovation in your brand positioning demonstrates your forward-thinking business approach and ensures you won’t become obsolete — in fact or perception.
2. Emphasize creating value for your stakeholders
Building on the first point, we must create the most significant value for our stakeholders, e.g., customers, tenants, investors, partners, vendors, the community, and the environment.
Coincidentally, generating value for these parties is the top priority in innovation. Stakeholders buy into our organization and vision because we present the promise (and proof) of outstanding financial returns, social and personal upside, experiential benefits (convenience, insight, transparency), and minimal risk.
As soon as value stops flowing, stakeholders will seek opportunities elsewhere. Focusing on giving fosters loyalty and goodwill, reducing churn.
3. Invest in data and analysis
Continuing the message of innovation, let’s talk about harnessing data. Data is among the greatest assets in our organizations. It represents a wealth of knowledge and insight regarding our investment and enterprise performance (track record), market conditions, and growth opportunities.
Investing in data and asset management technology to capture, organize, analyze, and share our data facilitates data ownership/security, situational awareness, strategic planning, decision-making, and collaboration. It also provides transparency and insight to stakeholders, assuring them of our progress and potential.
4. Keep out the water — optimizing expenses
As rent growth has cooled and inflation persists, managing and reducing expenses to maximize NOI is imperative — we can’t rely on rent growth and appreciation to drive value.
While there’s still potential to optimize rents by keeping our assets at peak appeal, economic pressures mandate we also operate at peak efficiency.
Of course, we should do this anyway to pass on value to our stakeholders. But in choppy waters, it’s a necessity to eliminate even the most minor leaks, i.e., sources of financial waste, that could sink us (and our track record). Data and asset management technology streamlines and automates much of the expense optimization process — innovation!
5. It’s all about the tenant/user
For many firms in the commercial real estate industry, tenants are top-priority stakeholders. Without them, all the capital and talent in the world don’t mean a thing.
Consequently, operators and investors must embody a spirit of service for their users/residents to ensure satisfaction, minimize turnover, and keep lease signings flowing.
Here are a few tips to better serve tenants:
- Listen to what they need and want and give it to them (amenities, terms, flexibility, etc.).
- Offer comfortable, healthy, safe, stylish environments that support satisfaction, productivity, and well-being.
- Provide a portal to interact with management, maintenance, and other residents.
- Hold community events to support rapport among tenants and staff.
6. Develop alternative revenue sources
If we can’t rely on rent increases and appreciation to push up value, what else can we do besides cut our expenses to improve NOI/margins?
We can look for and implement opportunities to generate ancillary revenue, that is, income generated by means other than rent.
There are plenty of creative options here, including paid:
- Onsite Retail.
- Storage Facilities.
- Meeting Rooms.
- Advertising Space.
- Event Space (clubhouse, rooftop, etc.)
- Premium property-wide WIFI.
Those are just a few ideas, and you can get very imaginative — look at what unique existing and potential opportunities your asset holds.
For residential properties, the work-from-home trend presents many ways to provide value and convenience that residents will gladly pay for. And for commercial assets, particularly those struggling with occupancy rates, these amenities add appeal and function for tenants.
7. Build an A-Team that knows how to handle and harness the economy
Your strategy is only as good as the team that conceives and supports it. Assemble an all-star team of executives, directors, advisors, managers, analysts, and consultants with experience navigating and prospering through market cycles.
Though demand for talent and compensation expectations are high, retaining a team that knows how to plan your approach and get it done is worth the effort and expense.
Once you have your dream team, give them all the support — vision, transformational leadership, constructive feedback, training, recognition, and rewards — to get their best work and earn their buy-in and loyalty.
Indeed, it’s a challenging environment for commercial real estate operators as the market recalibrates in the wake of the pandemic and subsequent inflation and monetary policy.
Yet, those who embrace innovation, generate superior value for all stakeholders, harness their data, manage expenses, go above and beyond for tenants, drive creative revenue, and assemble the best teams will sail through uncertainty and find brighter horizons.